Stop looking for shortcuts to a better credit score

One of the most frequent questions from readers in recent years can be summarized as: “What does xxx mean for my credit score?”

It’s time to share a credit score management secret: pay what you owe on time and never borrow, even close to the maximum amount lenders will give you. Do just that and you’ll have no problem borrowing at a competitive interest rate.

The final credit score question was a response to a newsletter published earlier this year on the importance of paying off credit card debt. A reader asked, “How does carrying a credit card balance affect your credit score?” I’ve read a bit about this and it turns out that some people think having a balance on a card is better for your credit score than paying what you owe in full each month.

Not true. Outstanding balances can hurt your score when they exceed 30% of a card’s borrowing limit, according to a major US credit reporting firm. “Maintaining a zero balance by paying off all purchases in full each month is the best of all.”

Your credit score is your history as a borrower distilled into a number on a scale that typically ranges from 300 to 900. A growing number of banks are offering online access to credit scores at no charge, and there are websites and apps that do the same. Some basics for interpreting numbers from Equifax, another credit reporting company: 760 and above are considered excellent, while 660 to 759 are good or very good. Below 660, you may struggle to get the best rate on a loan or mortgage.

Obviously, late payments and building up a large balance on a bunch of credit cards or a line of credit can hurt your credit score. But there are also small things that can lower your score, like adding a new credit card or canceling a credit card you’ve had for years and replacing it with a new one. I added a new card a few years ago and my score went down a bit for several months. Now it’s back to where it was before.

Credit scores are actually a product – a lot of money is made by collecting, analyzing and presenting this data to lenders. What you need to know about credit scores is very simple: pay on time and borrow less than you could.

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Rob’s Personal Finance Reading List

Investments vs inflation

An investor blogger examines how various types of investments work as an inflation hedge. Exchange-traded funds holding commodities look the best, while bitcoin and gold were the weakest. I like dividend growth stocks – many have a track record of average annual dividend increases even before today’s high rate of inflation.

RESP 1-2-3

An investment blogger tells you how to choose an asset allocation ETF for her kids’ Registered Education Savings Plan. Asset allocation ETFs simplify investing like nothing else – each is a mix of stocks and bonds suited for a particular level of risk. Parents of young children could certainly opt for a primarily equity asset allocation ETF. Does our investor blogger agree?

Anyone remember Beanie Babies?

Beanie Babies are basically stuffed animals with cute names. It was a 1990s trend and a reminder to anyone who invests a lot of money in fads – NFTs, perhaps – that the demand for hot collectibles of the moment can fade.

Guess who has the best five-year GIC rate

The Canadian Imperial Bank of Commerce is offering a special rate of 3.25% on five-year GICs. Here are some discussions of the offer on an online forum and an online resource to compare the best rates.

Today’s financial tool

The Flashfood mobile phone app is designed to connect you to grocery store foods that would end up in landfill if not purchased. Discounts of up to 50%. I wrote about a similar app called Too Good to Go in a recent newsletter.

The cashless zone

I’ve been enjoying Stevie Wonder’s Saturn lately. A song for these times.

Tweet of the week

I appreciate this proposition from The Food Professor, aka Sylvain Charlebois: “Instead of restrictions for the unvaccinated, how about tax relief for the vaccinated?”

In case you missed these Globe and Mail articles on personal finance

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